The resilience of Saudi Investment BankSaudi Investment Bank's financial profile was better than we expected, and has allowed it to address asset quality deterioration in 2009 resulting mostly from a large exposure.
We have revised the outlook to stable from negative and affirmed the 'A-/A-2' ratings on SAIB
The stable outlook reflects our view that the bank's capitalization and preprovision earnings generation capability are likely to remain resilient, offering a buffer against potential sustained pressure on asset quality in 2010.
We also view positively the decision to reshape the large investment portfolio into a liquidity tool rather than a profit-generating source. This is likely to reduce volatility in SAIB
PARIS (Standard & Poor's) May 31, 2010--Standard & Poor's Ratings Services said today that it has revised its outlook on Saudi-based The Saudi Investment Bank (SAIB) to stable from negative. At the same time, we affirmed our 'A-/A-2' long- and short-term counterparty credit ratings on the bank.
"The outlook revision reflects the resilience of SAIB's financial profile, which was better than we expected," said Standard & Poor's credit analyst Paul-Henri Pruvost.
Most notably, because of its preprovision earnings capability, the bank was able to swiftly address the asset-quality deterioration in 2009 that resulted mostly from the impairment of one of its largest exposures. We expect the bank's financial profile to continue to be resilient over the medium term.
The stable outlook reflects our view that SAIBS's capitalization and preprovision earnings are likely to remain resilient through 2010, offering a sufficient buffer against the possibly sustained pressure on asset quality owing to a less supportive economic environment and high concentration risks.
We would consider negatively any further asset quality deterioration that would result in a significant weakening in the bank's earnings and capitalization profile. On the other hand, we would consider positively a reduction of SAIBlarge concentration risk through a diversification of its lending book and funding, an improvement in asset quality metrics, and a sustainable strengthening and diversification in its earnings mix.
The ratings on SAIB reflect our view of the bank's adequate liquidity profile, as well as good preprovision earnings capability and capitalization. Negative rating factors include the bank's limited customer franchise, significant concentration risks on single names in the bank's lending book, and the still fragile economic environment in Saudi Arabia that is putting pressure on asset quality and profitability metrics.
We classify SAIB as a highly systemically important bank in Saudi Arabia and consider that the Saudi authorities are "interventionist" toward their banking sector. The long-term rating on SAIB is therefore one notch higher than its stand-alone credit profile, to reflect our expectation of the "high" likelihood of extraordinary support from the Kingdom of Saudi Arabia (AA-/Stable/A-1+) in case of need. The bank is 90%-owned by Saudi shareholders, including a 38.8% stake held by the government through public institutions, as of Dec. 31, 2009.
SAIB is a small bank compared with its peers in Saudi Arabia; it had total assets of Saudi Arabian riyal (SAR) 49.5 billion on March 31, 2010.
